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Saturday, January 23, 2010

Bar Stool Economics

Just read this and found it pretty cool. Since it was on Taxes, I thought you should be dying to read this one, in all 'certaininty'.

Suppose that every day, ten men go out for beer and the bill for all tencomes to $100. If they paid their bill the way we pay our taxes, it would gosomething like this:

The first four men (The poorest) would pay nothing.

The fifth would pay $1.

The sixth would pay $3.

The seventh would pay $7.

The eighth would pay $12.

The ninth would pay $18.

The tenth man (the richest) would pay $59.

So, that's what they decided to do.

The ten men drank in the bar every day and seemed quite happy with thearrangement, until one day, the owner threw them a curve. "Since you are allsuch good customers," he said, "I'm going to reduce the cost of your dailybeer by $20." Drinks for the ten now cost just $80.

The group still wanted to pay their bill the way we pay our taxes so thefirst four men were unaffected. They would still drink for free.

But what about the other six men - the paying customers? How could theydivide the $20 windfall so that everyone would get his 'fair share?' Theyrealized that $20 divided by six is $3.33. But if they subtracted that fromeverybody's share, then the fifth man and the sixth man would each end upbeing paid to drink his beer. So, the bar owner suggested that it would befair to reduce each man's bill by roughly the same amount, and he proceededto work out the amounts each should pay.

And so:

The fifth man, like the first four, now paid nothing (100% savings).

The sixth now paid $2 instead of $3 (33%savings).

The seventh now pay $5 instead of $7 (28%savings).

The eighth now paid $9 instead of $12 (25% savings).

The ninth now paid $14 instead of $18 (22% savings).

The tenth now paid $49 instead of $59 (16% savings).

Each of the six was better off than before. And the first four continued todrink for free. But once outside the restaurant, the men began to comparetheir savings.

"I only got a dollar out of the $20,"declared the sixth man. He pointed tothe tenth man," but he got $10!" "Yeah, that's right," exclaimed the fifthman. "I only saved a dollar, too It's unfair that he got ten times more thanI!" "That's true!!" shouted the seventh man. "Why should he get $10 backwhen I got only two? The wealthy get all the breaks!" "Wait a minute,"yelled the first four men in unison. "We didn't get anything at all. Thesystem exploits the poor!"

The nine men surrounded the tenth and beat him up.

The next night the tenth man didn't show up for drinks, so the nine sat downand had beers without him. But when it came time to pay the bill, theydiscovered something important. They didn't have enough money between all ofthem for even half of the bill!

And that, ladies and gentlemen, journalists and college professors, is howour tax system works. The people who pay the highest taxes get the mostbenefit from a tax reduction. Tax them too much, attack them for beingwealthy, and they just may not show up anymore. In fact, they might startdrinking overseas where the atmosphere is somewhat friendlier.